International oil prices may fall to a low of US$25 a barrel in the second quarter and average US$35 this year, as supply cuts fail to offset a sharp and sudden demand plunge, according to Morgan Stanley.
The United States-based brokerage's forecast, one of the most bearish views given by analysts, comes amid daily news of lay-offs and losses suffered by major companies and announcements of government economic stimulus measures.
Analysts have made a wide range of oil price predictions, depending on their view on the depth and duration of the global economic slump, and their expectations on the pace at which demand and supply will fall.
'We think that the oil markets are lagging the macro economists in understanding the severity of the economic outlook,' Morgan Stanley said in a research report. 'As they catch up and as the full extent of the demand weakness becomes clear, we expect prices to move lower.'
It said its forecast was based on expectation that 'global demand is poised to post its largest year-on-year contraction since 1982 on a sputtering global economy', adding that supply cuts will be 'a longer-term issue' and a 'non-issue in 2009'.
The gloomy prediction came after the International Monetary Fund slashed its estimate on this year's global economic growth to 0.5 per cent from 2.25 per cent.
The drastic economic turmoil saw rival Goldman Sachs cut its calculation on this year's oil price from US$123 to US$86 in mid-October, and then to US$45 in mid-December.